Traditionally, bank competition has been defined in terms of bank vs. bank, with institutions jockeying for supremacy through their physical distribution in local markets.

The way to compete was by creating a more extensive branch network, putting branches on the right corners, and turning to a solid sales force to compete head-on in loans and deposits with the bank across the street. But that method relied on physical presence and saddled a bank with very high delivery costs.

I would like to offer an alternative view of bank competition. While banks do compete with local rivals with strong physical presences-and some are formidable indeed-nationwide competitors with a single product and a cheaper means to deliver it are at least as important.

All of us include these in our "threat" column when we do our strategic planning exercises. However, our distribution, product lines, and facilities management do not reflect our acknowledgement of this threat.

In order to deal with a redefined competitive environment, the following steps must be taken:

The branch network should be rationalized to compete effectively against rivals whether branch-based or not, with costs brought more in line with those of local competitors. Further, while building mausoleums may be our way of burying the dead, we should move beyond that to reconsider our physical distribution strategy.

Investments in branch facilities should be reviewed and compared to investments in other delivery channels. They should be compared against benchmarks such as sales per square foot and revenues per employee.

Direct distribution should be developed and managed as a full-fledged distribution channel, using direct marketers like credit card, mutual fund, and mortgage companies as models.

We need phone banks and direct banks that can deliver deposit and loan products to customers. There is no reason that clients should not be able to open checking accounts with us through the PC or by phone, and we must develop that capability and manage it as we do more traditional distribution channels.

Niche plays. In addition to competing head-on in distribution, efficiency, and convenience, banks should have product proficiency to meet the needs of targeted customers. That's where niche plays and product specialization come in.

In order to compete with Countrywide, Norwest invested in the mortgage business, and it became a major specialty line for the company. At Park National, a $2 billion-asset bank in Ohio, financing used aircraft is a strong specialty, while at Premier, a $3 billion-asset bank in Louisiana, distributing mutual funds through community banks became a niche play.

In summary, our competitors have proliferated in number, distribution channels, and product expertise. We need to respond to these challenges that threaten to capture our customers. Only through revising distribution and meeting the competition head-on will we win.

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